Auto Workers Seek Information On G.M.'s Ties to Mortgage Risk

By REUTERS

Published: November 21, 2007

Ron Gettelfinger, president of the United Automobile Workers union, said yesterday that he was concerned by General Motors' exposure to the mortgage lending arm of its former finance unit, GMAC Financial Services, and would seek a meeting with executives at the automaker for more information.

''It's a concern,'' Mr. Gettelfinger said at the Reuters Autos Summit in Detroit. ''It's a pretty big concern. There's no question it's an issue.''

G.M. shares closed down almost 8.5 percent on the New York Stock Exchange on Monday amid investor concern over the automaker's exposure to the subprime market through G.M.A.C., in which it retains a 49 percent stake.

G.M.A.C.'s residential mortgage unit, ResCap, lost $2.26 billion in the third quarter.

ResCap bonds also plunged on Monday, and the cost to insure G.M.A.C. bonds rose. Investors said ResCap might need an injection of capital to avoid violating loan agreements.

The decline in G.M. stock wiped out the gains from a rally that began in September in anticipation of a cost-cutting labor deal between the automaker and the union. Yesterday, shares of G.M. were down 50 cents, or 1.8 percent, to $26.29.

Mr. Gettelfinger said that union members were worried about the drop and that he planned to speak with G.M.'s chief financial officer, Frederick A. Henderson, about the automaker's exposure to G.M.A.C.

An investor group led by Cerberus Capital Management bought a 51 percent stake in G.M.A.C. from G.M. last November in a deal worth around $14 billion.

At the time, analysts said ResCap was the crown jewel in the deal. G.M.A.C.'s other subsidiaries provide automotive financing, commercial finance, insurance and real estate services.

A JPMorgan analyst, Himanshu Patel, said that a ResCap bankruptcy could cost G.M. shareholders about $2.65 a share, adding that it was doubtful that G.M. would take part in a bailout of the company.